As the name suggests, IFRS is a set of standards suggesting how to report financial statement at international level. While maintaining company’s account, preparing and reporting financial statement, these standards must be followed in practices of accounting.
Standards of Financial Reporting were designed to provide a common set of rule to be followed by companies in financial reporting. The purpose of establishing common international standards is to make all financial statements to be consistent, transparent and comparable around the world.
IFRS clarifies how companies must adopt best practices to maintain and report their accounts, specifying types of transactions and other events having financial impact.
Hence it can be seen as a common accounting language, helping businesses and their financial statements to be consistent, transparent and accountable, at par with the global standard financial practices thus making them reliable from company to company across the world.
IFRS are of more significance for those businesses reporting their financial result anywhere in the world.
IFRS are more like general principles to be followed in financial accounting.
Topics covered by IFRS
- Presentation of financial statements
- Recognition of revenue
- Benefit to employees
- Costs of borrowing
- Income Tax
- Investment in Associates
- Fixed and intangible Assets
- Retirement Benefit Plan
- Foreign Exchange Rates
- Subsequent events
- Business combinations
- Operating segments
Advantages of IFRS
Acceptability across the world: IFRS have been widely accepted across international boundaries. These are applicable in around 166 nations, out of which about 144 nations have adopted IFRS. Therefore, Financial Statements prepared as per the IFRS are widely accepted and recognized globally.
Transparency and Comparability: IFRS framework brings clarity and transparency in financial statements of businesses. Companies of different nationality, adopting common accounting framework can easily be compared globally.
Guidance to apply standards: An elaborated guidance is provided by IFRS in respect of how to apply rules of standards in different circumstances.
Revision of IFRS: Standard are revised and modified in case of big changes in economic situations.
Strengthen Accountability: Following IFRS in accounting practices helps in building trust between investors and businesses where capital in being invested. Thus it brings transparency and strengthen accountability between the both
Lowers International Reporting cost: It lower down the capital costing and lessen the international reporting cost to regulate international accounting practices.
Business Opportunity: With the help of IFRS, Businesses can identify the opportunities and risk associated with it.
Composition of IFRS
International Accounting Standards Board: IASB is responsible for designing the standards of international financial reporting to make them understandable and comparable across the world. The board is comprised of with experts of diverse professional background and geographical region.
Monitoring Body: It is responsible to oversee and monitor the the organization.
Trustees: Trustees work to promote IFR standards and to secure the organization’s funding. The board is overseen by trustees.
Following are the important IFRS
IFRS 1– International Financial Reporting Standards
IFRS 2– Share-Based Payment
IFRS 3– Business Combinations
IFRS 4– Insurance Contracts
IFRS 5– Non-current Assets held for sale and discontinued operations
IFRS 6– Exploration for and Evaluation of Mineral Assets
IFRS 7 –Financial Instruments Disclosures
IFRS 8 –Operating Segments
IFRS 9– Financial Instruments
Methods for adopting IFRS
It provides two types of method. Different countries choose either of the methods as per their suitability.
Full Adoption: It means companies adopt IFRS as it is in original form. Companies implement them to follow in the same manner as they are issued in blueprint of IFRS.
Convergence: It means countries adopt IFRS with some modifications or changes. Nations alter Standards as per their suitability and requirement of their country.
Implementation of IFRS in INDIA
India has opted for Convergence Method. India implements IFRS in their converged form after making certain deviations from the original IFRS. Converged form of IFRS in India is known as Ind AS (Indian Accounting Standards).
Areas where India has make deviations from are: revenue recognition, leasing, foreign convertible bonds, current vs non-current liabilities and bargain purchases.
Logic for Deviations
In order to avoid any conflict between rules and regulations of any law or Act with the principles of IFRS, which can create chaos in financial reporting. Hence the purpose to make Ind As in consonance with original IFRS is to ensure the suitable applicability in the current socio-legal and economic condition of the country adopting convergence.
How ICAI Work in this regard?
ICAI (Institute of Chartered Accountants in India) prepares an exposure draft of Ind AS which are in consonance with IFRS standards. After a due consideration and deliberations, the final draft Ind AS is approved by the ICAI Council and which adopted by Ministry of Corporate Affairs via public notice.
IFRS has proven its importance in helping the economies to become better, efficient and stable. It provides for a common accounting language which is distinct, lucid, highly standardized at par with the global standard. It helps companies to increase their businesses by getting opportunities of investment at global level.
At VMR team of experts is ready to resolve all the IFRS conversion and adoption issued faced by Companies.